Going into 2010, there were some nascent signs of recovery for the US dairy sector. A recovery in the world market for dairy products saw the average price US farmers receive for raw milk rise in every month of Q309. In October 2009, following another month-on-month rise, milk prices were the highest they have been since December 2008. Though the average price in October was still down 22% year-onyear (y-o-y), this is a large improvement from the middle of the year, when prices were down by a whopping 42% in July. As the world economy continues to recover in 2010, we expect dairy prices in the US to continue their climb back up, helped by decreased milk production as the drawdown of the dairy herd continues.

One sector that struggled in 2009 is the ethanol industry. Ethanol production in the US has boomed over the past decade, driven by high oil prices and government policy to support biofuel production. This has led to a rapid rise in demand for corn. From 2001 to 2008, the proportion of total corn demand in the US accounted for by the ethanol industry rose from from 7.5% to 23.2%, with corn consumption by the ethanol sector reaching 3.05bn bushels in 2008.

In 2009, the US's over 170 ethanol plants were hit by a plunge in the price for ethanol, driven by the fall global world oil prices since the peaks of 2008. In 2010, while plants will still be suffering from high debt levels, the rise in world oil prices will drive a recovery in ethanol prices. We expect production of cornbased ethanol to keep expanding through our forecast period to 2014. The Energy Independence and Security Act, passed by then-president George Bush in 2007, included a renewable fuel standard laying out targets for production of biofuels from various feedstocks up to 2022. Under the act, corn-based ethanol production is set to reach around 15bn barrels per year in 2015, up from 9bn barrels in 2009. This will obviously lead to a large increase in demand for corn from the ethanol industry. The rise in demand for corn will see production of the grain continue to expand both through improvements in yield and the conversion of land previously used for other crops. The ethanol industry will continue to buoy up grain prices, potentially making life for difficult for other major users of grain, predominantly the livestock industry.

We are expecting falls in production across the board in 2009 for the US livestock sector. In the first three quarters of 2009, beef production fell 3.2% y-o-y to 8.91mn tonnes, while pork production dropped 1.5% y-o-y to 7.71mn tonnes. We also estimate poultry production to have fallen. In 2010, while we expect poultry production to return to growth, thanks to strong demand both at home and from the export market, we expect production of red meat to fall once again.